facebook twitter instagram linkedin google youtube vimeo tumblr yelp rss email podcast blog external search brokercheck brokercheck
%POST_TITLE% Thumbnail

Pacific Wealth Management Market Comment (Oct '21)

Insights

  • We are now approaching a transition point in the COVID-era economic cycle.
  • Near-term, market volatility will persist as uncertainty around debt ceiling negotiations, supply chain bottlenecks, corporate forward earnings, and inflation remains elevated.
  • Inflation concerns are prompting the U.S. Federal Reserve Bank to likely announce in November they will begin tapering the number of bonds they have been buying monthly since March 2020.   Although interest rates will likely trend higher, we think they will stay on the lower end of their historical range.
  • We anticipate problems in the supply chain to subside and labor cost increases to slowly ebb next year.  We do not believe a recession is likely over the near term, but rather a slower pace of growth.  

As anticipated, global financial markets have entered a period of volatility as they focus on a confluence of concerns that recently have been presenting more questions than answers.    

We are now approaching a transition point in the COVID-era economic cycle.  Inflation concerns are prompting the U.S. Federal Reserve Bank to likely announce in November they will begin taking their foot off the accelerator pedal and begin tapering the number of bonds they have been buying monthly since March 2020. How quickly the Federal Reserve scales back its bond market manipulation has investors feeling uneasy.  

Other contributors to market volatility include uncertainty as to how debt ceiling negotiations in Congress will resolve and concerns surrounding proposed tax increases for individuals, investors, and corporations. Jerome Powell’s position as Fed Chairman is uncertain. Global supply chain bottlenecks continue to plague wholesalers and retailers. We see a general slowdown in economic growth and corporate earnings.

This year stock markets have delivered healthy investment returns while bond values have mostly declined as interest rates moved higher.  Despite the current volatility we are experiencing, the S&P 500 is just 1.5% below the highs it reached in early September.  However, 90% of individual S&P stocks have experienced corrections of 10% from their respective high watermarks.  As inflation exceeds expectations, commodities remain one of the only asset classes to continue their upward trajectory.  The slowing pace of economic growth combined with higher inflation recalls the unpleasant and challenging 1970’s period of stagflation.  

The response to the COVID pandemic by the world’s central banks over the last 18 months has resulted in too much money (surging demand) chasing limited amounts of goods (supply). As economies around the globe reopen, inflation risks are rising. However, we expect manufacturing production to ramp up over time and meet the increase in demand. We anticipate problems in the supply chain to subside and labor cost increases to slowly ebb next year.  Although interest rates will likely trend higher, we think they will stay on the lower end of their historical range.

Our diversified Pacific Wealth Management portfolios are built to weather these unsettled markets.   We do not believe a recession is likely over the near term, but rather a slower pace of growth.  Please contact us with any questions or concerns regarding your investment portfolio, the financial markets, or the news of the day.


Client Login Let’s Connect